These Two Assets Show Us a Crash is Coming

If the foundation of the financial system is debt… and that debt is backstopped by assets that the Big Banks can value well above their true values (remember, the banks want their collateral to maintain or increase in value)… then the “pricing” of the financial system will be elevated significantly above reality.

In the US, Coal has become a political hot button. Consequently it is very easy to forget just how important the commodity is to global energy demand. Coal accounts for 40% of global electrical generation. It might be the single most economically sensitive commodity on the planet.

With that in mind, consider that Coal ENDED a multi-decade bull market back in 2012. In fact, not only did the bull market end… but Coal has erased virtually ALL of the bull market’s gains (the green line represents the pre-bull market low).

Those who believe that the global is in an economic expansion will shrug this off as the result if the US’s shift away from Coal as an energy source. The US accounts for only 15% of global Coal demand. The collapse in Coal prices goes well beyond US changes in energy policy.

What’s happening in Coal is nothing short of “price discovery” as the commodity moves to align itself with economic reality. In short, the era of “growth” pronounced by Governments and Central Banks around the world ended. The “growth” or “recovery” that followed was nothing but illusion created by fraudulent economic data points.

We get confirmation of this from Oil.

For most of the “so called” recovery, Oil gradually moved higher, creating the illusion that the world was returning to economic growth (demand was rising, hence higher prices).

That blue line could very well represent the “false floor” for the recovery I mentioned earlier. Provided Oil remained above this trendline, the illusion of growth via higher energy demand was firmly in place.

And then Oil fell nearly 60% from top to bottom in less than six months.

As was the case for Coal, Oil’s drop was nothing short of a bubble bursting. From 2009 until 2014 Oil’s price was disconnected from economic realities. Then price discovery hit resulting in a massive collapse.

Moreover, the damage to Oil was extreme. Not only did it collapse 60% in a matter of months. It actually TOOK out the trendline going back to the beginning of the bull market in 1999.

This is a classic “ending” pattern. Breaking a critical trendline (particularly one that has been in place for several decades) is one thing. Breaking it and then failing to reclaim it during the following bounce is far more damning.

In short, the era the phony recovery narrative has come unhinged. We have now entered a cycle of actual price discovery in which financial assets fall to more accurate values. This will eventually result in a stock market crash, very likely within the next 12 months.

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The way PC began, I was sure he was talking about credit derivatives and the Markit Group (originally founded and financed by Chase, Goldman Sachs, Citigroup and BofA), but then he segued to King Coal?

I think that there is a possibility that the current commodities price pullback is in part due to central banks and the cabal artificially propping up the dollar by enormous short positions on the commodities markets. In the case of oil, there may also be a political motivation to punish Russia by artifically depressing oil prices and thereby deprive them of short term revenue. I don't think the commodities would be this cheap if there was not ongoing orchestrated US$ support going on.

I think this is a more credible explanation than believing that commodities are actually cheaper to produce in real terms than that reflected by the past multiyear trend. As evidence for this position I would site the massive money creation that has occurred during this time period. Isn't it more credible that the US$ should be weak (and consequently commodity prices stronger) in a monetary expansionist environment? I would argue yes. For this reason I am more inclinded to suspect artificial price support for the US$ than I am an "economic reset" which massively revalues commodities at a lower level - as suggested by PCR's premise.

This said, on a valuation basis, I am very comfortable with PCR's premise that a sizeable equity markets correction will happen soon. My only point is that I think that commodities overdone to the downside and may in fact represent good value at this point (especially crude and PM's).

I subscribe to this guys newsletter. He made a Recommendation on an inverse ETF which I decided to ignore as an exercise to see how contrarian his advice was. The day after his recommendation shorts got squeezed and the index of which the security went parabolic to the downside. I like his analysis but all of his 'triggers' and proclamations have been equal and opposite to the reality. My guess is the market will continue to rally through May in spite of his predictions that the markets are showing reversal. He's using a pretty but outdated set of tools and reasoning that doesn't square with Central Bank manipulation

I read his news letter to. He has always been on the bearish side for years now and rightly so. But has been said many times, you can't fight the Fed. When is the Fed going to be charged with market manipultion?

Why do you think the fed instituted a 2% inflation rate target? Because at that inflation level it keeps their member banks collateralized assets appreciating in value, so in case of a default, the bank can liquidate and be made whole. it's all about the banks.

More than likely a golobal conspirACY is responsible for coal and oil rices behaving as they have and the commodities trading firms should be audited to discover it.

This is NOT a market reaction but an artificial one, just as the stock prices are being manipulated ever upwards in spite of the lack of metrics that would substantiate these current all time high values.

If prices are manipulated higher, then there either has to be a bigger sucker or a means to inflate the price without the sucker. If there was a sucker there would be a bag holder, and thus it would be time for all the insiders to book their profits, crash.

Since this has not happened, yet, we can assume there is no sucker and thus hot air or credit has been used to inflate the price of stock with most of the pricing action performed by computers in time periods to quick for most humans to monitor. Which also leaves us with the reality that the bigger sucker is yet to come, or shame of all shames their game comes completely apart realizing they either shot the bigger sucker in the head and he's dead or he's just too broke and doesn't have any money and can't take on new debt.

I think the big problem is debt saturation and it's effects on the economy are unexperienced and thus most of us are confused expecting one thing to occur as it should logically do, but then another thing completely unexpected occurs.

Now, don't junk me too much, but I was listening to Harry Dent say he expects gold to go down - way down - before it ever soars up. Like $700 range, and maybe evern lower than that. Do you think that's true?

One problem I had with Dent is that he favors cash, but fears a bail-in.

I think Dent is right about gold going down. 700 to 800 dollar range. I also believe that the Fed will then panic and start QE4. Then gold goes parabolic to around 5000. But I also believe Jim Willie. And John Williams. And Darrel Robert Schoon. And Greg Mannarino. And where has that gotten me in the last five years? No where. Place your bets. Take your gambles. The house always wins.

Astute observation, it's been like one big circle jerk listening to all the diff viewpoints, and like yourself I am not better off than I was five years ago. I am not much worse off thankfully but not better off.

I do think gold will tank before it rises from the ashes. It stands to reason there will be one last hurrah before at some point the lid comes off and we see some higher prices, at which point I am not sure it matters.

You two have it figured correctly. Forget the a**Holes that publish their trash crap everyday about hyperinflation, $5000 silver and $10,000 gold, as well as "get out of the banks" (Sinclair) and "GO ALL IN" (Miles Franklin). As long as governments can PRINT MONEY we are screwed. My wealth down 50% since 2011 - I don't see how it will come back in my lifetime. I should have bought potato chips(even when stale they would have been worth more than the freakin coins I have). Selling the house to stay alive.

Your timing has been impecably uniformly horrible. The only thing more stupid than the right decision at the wrong time is the wrong decision at the wrong time. There is no difference in the outcome however. You will not be able to call the bottom of the massive worldwide asset distortion that now affects every asset class.Honestly, I'm not sure why you think you have any credibility here?

Same headline he's used for the last 5 years? Just plug in a different asset each time and pimp it. Crash ain't a comin until it's decided it's time to arrive, and the way they have been beating the carcass of this horse I might not see it in my lifetime.

From the article: We have now entered a cycle of actual price discovery in which financial assets fall to more accurate values. This will eventually result in a stock market crash, very likely within the next 12 months.

WRONG - Until such time as a black swan erases a nice chunk of all the extra cash created by the chorus of central banks, "price discovery" is a thing of the past. Yes, we can always have flash crashes generated by algos and HFT, but the effects are fleeting.

TPTB have a vested interest in inflating the stock market as the peons and peasants equate that to a healthy economy, therefore continued confidence in the system.

As I look at commerical electricty prices in the 10 states where the price/kWh is lowest, the trend seems to be downward starting about 6 months ago...the states are spread across the country and reflect a mix of coal/natgas generators

Yep, you look at the numbers then look at what the markets are doing and it's just one big WTF. Everything is pointing one direction and the market is going the other direction. Little pink bunnies for everyone.....